The ECB and the UK General Election will dominate the focus for traders in the coming days and have the potential to significantly increase volatility for financial markets. We look at how these will impact on markets, the outlook for forex, equity indices and commodities in the coming week and potential moves that traders can expect as a result.
In the next couple of weeks there could be some significant volatility increasing in the major markets. In the next two weeks there is a General Election in the UK in addition to two crucial central bank monetary policy announcements from the ECB and then the Federal Reserve next week. For this coming week, first up is the ECB on Thursday. Economic trends have been improving in the Eurozone for several months now and although inflation has been fluctuating, the PMIs suggest continued economic recovery. Expectation is that the ECB will reflect this improvement in the forward guidance for the meeting this week and this could involve the removal of just two words “or lower” but this would signal a removal of its commitment to extend easing measures on a deterioration. This would signal to the market that normalisation has begun. It would also leave the door open to announcing the next step, the start of tapering asset purchases at the September meeting with a view for the tapering say $20bn per month at the beginning of January. The euro will be volatile. Also on Thursday the UK holds its parliamentary elections. There will be an exit poll at 2200BST that night and the volatility will begin on sterling. The moves will continue throughout Friday on the announcement of individual constituencies that are considered bellwethers. If the result is any sort of surprise there will be a significant reaction on both sterling and FTSE 100.